The National Council on Compensation Insurance (NCCI) has announced changes in the formula that is used to calculate experience modifiers for employers in most states and Illinois is one of them. Currently claims under $5,000 are weighted heavier then claims over $5,000… in the work comp world this $5,000 mark is called the “split point”.

In this change the split point will be incrementally increased from the current $5,000 to $10,000 in 2013 and $13,500 in 2014. Thereafter, the split point will be tied to an inflationary index that will start at $15,000. NCCI cites medical inflation as the reason for the changes, and a need to make premiums more reflective of an employer's loss experience. For example, in the first year of these changes, contractors with no losses greater than $5,000 should see a drop in their experience modification rating (EMR) factor, while those with a relatively large number of losses approaching or exceeding $10,000 will see an increase in their Experience Modification Factor. There is no cap on how much an employer's EMR can increase in a given policy year.

These changes will impact all industries but perhaps the construction industry more than most due to minimum EMR requirements imposed on contractors by many project owners just to qualify to bid on a project. Furthermore, it could affect eligibility for the contractors credit premium adjustment program (CCPAP), which provides discounts to contractors who pay higher than the state average hourly wage for employees in certain construction classifications. In Illinois contractors must have an EMR of 1.0 or lower to be eligible for the CCPAP discount.

Unfortunately, because the experience rating period covers prior years' losses, contractors will not have the opportunity to implement strategies that could reduce the impact of the changes before they become effective. However, contractors do need to prepare for the changes by calculating an estimate of their new EMR and account for the difference in premium in their 2013 budget. If you feel that these changes may adversely affect your work comp mod we can work up an estimate of the new mod to see the full impact.

For more detail on the subject the NCCI has produced a few videos on the subject: